They’re all making it up.

This past June, crude oil prices were hitting highs above $110 a barrel and the narrative was that this was why stocks were selling off. The S&P 500 had a weekly correlation of .55 with oil, meanwhile, and had actually spent most of the year rising with it. So not only was the “story” of why stocks were dropping false, the data was as well.

Some headlines from June:

Oil prices jump on Iraq anxiety, stocks fall (Reuters)

U.S. Stocks Fall as Oil Prices Rally Amid Iraq Tension (Bloomberg)

Oil prices up, stocks down (CNNMoney)

Dow Drops Over 100 Points as Iraq Fighting Raises Oil Prices (CNBC)

The reasons given then to describe the relationship between oil prices rising and stock markets selling off were adorable.

Today, the S&P 500 has a weekly correlation with oil of negative .55, literally an about-face from this time six months ago. A correlation of negative .55 means that the two are almost diametrically opposed. And yet – and yet – the drop in oil is being blamed for the selloff in stocks today. The Dow dropped 312 points, after having risen for five straight weeks, and the business media is blaming oil.

Here are today’s headlines, in order, from the same publications as the headlines above (in one case, from the same writer):

Oil slump leads Wall Street to worst week in 2-1/2 years (Reuters)

Oil Freefall Gives Dow Worst Week Since 2011; VIX Jumps (Bloomberg)

Tumbling oil could take thousands of jobs with it (CNNMoney)

Oil hits stocks; worst week of 2014 for Dow, S&P 500 (CNBC)

To recap – Stocks sold off in June because oil prices rose. Stocks sold off today because oil prices fell. In the meantime, stocks have no current correlation with oil and they had a higher one last summer when the spike took place.

What should your takeaway be from this, as an investor?

They’re all making it up.

They’re watching market prices fluctuate and assigning meaning where none exists. Stories are being told and headlines are being crafted so that there is something for you to click on from your app when you check the news. This is nothing to be mad about, it is what it is. But the sooner you learn this lesson, the savvier a consumer of financial news you will be.

Daily market reports – collections of statistics woven together with quotations from whichever experts answered their phones – are inferior to raw data and charts. They’re giving you an ex-post description of the beliefs of your fellow guessers who are no better at explaining day-to-day randomness than you are.

Trust me, I wrote a book about it. 

Full Disclosure: Nothing on this site should ever be considered to be advice, research or an invitation to buy or sell any securities, please see my Terms & Conditions page for a full disclaimer.

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